Vol 21 (2024) - Issue 2

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Fate of Avoidance Applications after Approval of Resolution Plan: Analysing Tata Steel

Synopsis
One of the key reasons behind the enactment of the Insolvency and Bankruptcy Code, 2016 ('IBC') was to establish a robust insolvency regime in India that minimizes the extent of haircuts and results in asset value maximisation for the sustainability of the Indian credit market. An important aspect in achieving this goal is to ensure the reversal and avoidance of preferential transactions as recognised under Section 43 of the IBC. The jurisprudence on this aspect is at its relatively nascent stage with several prevailing ambiguities regarding avoidance actions.
However, a recent landmark judgment of the Delhi High Court ('Delhi HC') in Tata Steel BSL v Venus Recruiters ('Tata Steel'), pronounced on 15 January 2023, marks a critical shift concerning the adjudication of preferential transactions in Indian insolvency jurisprudence. The Delhi HC overruled its previous judgment in Venus Recruiters v Union of India & Ors ('Venus Recruiters'), eventually ruling that avoidance applications survive the Corporate Insolvency Resolution Process ('CIRP') and can be adjudicated even after the approval of the resolution plan.
This article discusses the Delhi HC's verdict in Tata Steel. First, it analyses the judgment with respect to the statutory scheme of the IBC concerning avoidance transactions and juxtaposes the decision with the concerns and problems posed by the HC's earlier judgment in Venus Recruiters. Secondly, it examines the decision's commercial soundness in the context of certain foundational principles undergirding the concept of avoidance applications in insolvency law. Thirdly, the article spotlights certain unfavourable aspects of the judgment and the potential consequences that may emerge from them.